Cost Savings Analysis of Performance-Based Contracts for Highway Maintenance Operations

Highway agencies around the world are undergoing major changes in their traditional maintenance practices, including the privatization of entire sections of highway routine maintenance activities. Performance-based contracts (PBC) are an option in such privatizing efforts. This paper presents a methodology to estimate the likelihood and amount of cost savings associated with the application of PBC for highway maintenance operations. Using data on maintenance contracts from around the world, we develop models that can be used to compare several contracting methods and include variables such as contract duration, activity type, and contract size. We find that large projects with strong competition, long duration and extension periods, long outsourced road sections that incorporate crack sealing, pothole repair, illumination repair/maintenance, and mowing activities, favor outsourcing under PBC. Our methodology can be useful to transportation agencies for making decisions about the use of PBC and other methods of maintenance outsourcing at the preplanning phase.

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